Limited right to cancel certain non-purchase credit transactions secured by a consumer's principal dwelling.
The right of rescission is a consumer’s limited right under the Truth in Lending Act to cancel certain non-purchase credit transactions secured by the consumer’s principal dwelling.
Rescission gives a homeowner a short period to reconsider certain transactions that place a new security interest on the principal home. It most commonly arises with qualifying refinances, closed-end home-equity loans, and home-equity lines of credit. The borrower usually sees the right through a Notice of Right to Cancel delivered at signing.
The rule does not create a general three-day right to cancel every mortgage. A loan used to acquire or construct the principal dwelling is a residential mortgage transaction and is generally exempt. A loan secured only by a vacation home or investment property also falls outside the principal-dwelling rule.
Each consumer whose ownership interest is subject to the security interest may have the right, even if that owner did not sign the credit agreement. That is why the closing package may contain notices for more than one property owner.
Borrowers encounter rescission at consummation of a covered transaction. The creditor generally waits for the rescission period to expire before disbursing proceeds, performing services, or delivering materials, except for money placed in escrow and other limited actions permitted by the rule.
The practical questions are whether the transaction is covered, which owners have the right, when the period starts, and where written cancellation must be sent.
The ordinary rescission period runs until midnight of the third business day after the last of these three events:
For this purpose, Saturdays generally count as business days. Sundays and specified legal public holidays do not. The closing date itself is not counted as one of the three later business days.
| Event | Example timing |
|---|---|
| Covered transaction consummated on Friday and all notices delivered | Saturday is day 1, Monday is day 2, and Tuesday is day 3 if no legal holiday intervenes |
| Required notice delivered after consummation | The count begins only after the later notice-delivery event |
| Material disclosures not properly delivered | The ordinary three-day period may not begin as expected |
If required notice or material disclosures were not delivered, a possible rescission right can last longer, generally up to three years after consummation or until an earlier sale or transfer of all the consumer’s interest. Whether an extended right exists is fact-sensitive and is not the same as simply missing the ordinary deadline.
| Transaction type | Does rescission usually matter? |
|---|---|
| Purchase mortgage | Usually no after the closing documents are signed |
| Refinance with a different creditor, secured by the principal dwelling | Often yes when the transaction is covered |
| Same-creditor refinance of existing home-secured debt | Generally exempt except to the extent of qualifying new money advanced |
| Certain home-equity loans or HELOCs | Often yes when secured by the principal dwelling |
| Investment-property or second-home transactions | Usually no under the principal-dwelling rescission framework |
A homeowner consummates a qualifying cash-out refinance with a new creditor on Friday and receives all required notices and material disclosures that day. Assuming no legal holiday intervenes, Saturday, Monday, and Tuesday are the three business days. The homeowner must send or deliver written cancellation by midnight Tuesday using the notice instructions.
A phone call alone is not the prescribed exercise method. The consumer gives the creditor written notice by mail or another permitted written means. The consumer does not have to use the creditor’s form, but sending the notice to the designated place of business is important.
A consumer may modify or waive the waiting period only for a bona fide personal financial emergency. The consumer must provide a dated written statement describing the emergency and specifically modifying or waiving the right; a preprinted waiver form is not sufficient. Wanting proceeds sooner for ordinary convenience is not automatically an emergency.
The right of rescission differs from Closing because closing is the signing event itself, while rescission is a limited post-closing cancellation right in certain transactions.
It differs from Notice of Right to Cancel because rescission is the underlying right, while the notice is the borrower-facing document explaining how the right may be exercised.
It also differs from Cash-Out Refinance because cash-out refinance is a loan type or purpose, while rescission is a legal protection that may or may not apply depending on the transaction.
It also differs from a Contingency. A contingency is a pre-closing contract protection, while rescission is a federal credit-law right connected to consummation of certain home-secured transactions.
It differs from canceling a Rate Lock. A rate lock governs mortgage pricing for a stated period; ending or changing it does not itself rescind a consummated credit transaction.